Buying And Selling Of SIM Cards/ Recharge Coupons Doesn’t Constitute Business Auxiliary Service: CESTAT

The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) ruled that the extended period of limitation under Section 73 of the Finance Act, 1994 cannot be invoked to issue a second show cause when on an identical issue, a show cause notice was earlier issued to the tax payer by the Revenue Department.

The appellant, M/s J.K. Enterprises, is in the business of buying and selling of SIM cards and recharge coupons for mobile phones under a ‘Super Distributor Agreement’ entered into with M/s Vodaphone Essar Digilink Ltd.

Alleging that the appellant was providing business auxiliary service to M/s Vodaphone Essar Digilink as its franchisee for sale, distribution and marketing of SIM cards and recharge coupons, a show cause notice seeking to impose service tax along with penalty was issued to the appellant.

Consequently, the Principal Commissioner of Central Excise passed an order, confirming the demand of service tax under Section 73 of the Finance Act, 1994, along with penalty, against the appellant.

Against this, the appellant filed an appeal before the CESTAT.

The appellant, J.K. Enterprises, submitted before the CESTAT that it is buying the SIM cards from its principal, M/s Vodafone Essar Digilink, and selling them to the public. It added that it was merely trading in SIM cards and recharge coupons, and was not rendering any service to M/s Vodafone.

The appellant further argued that the entire demand raised by the department was hit by limitation as the show cause notice was issued after a period of one year from the relevant year to which the demand relates. It further contended that since on an identical issue, a show cause notice was earlier issued to the appellant by the Revenue Department, the second show cause notice cannot be issued by invoking the extended period of limitation.

The revenue department averred that, as per the Supreme Court’s decision in Idea Mobile Communication Ltd vs C.C.E.& C (2011), SIM cards are not goods but are a form of service, whose value is includible in the value of service provided by the telecom operator. Thus, the department argued that buying and selling of SIM cards by the appellant, can be considered as rendition of business auxiliary service to its principal, M/s Vodafone Essar Digilink.

The bench took note that as per Section 73 of the Finance Act, 1994, a show cause notice raising service tax demand can be issued by invoking the extended period of limitation, where service tax was not paid by reason of fraud, collusion, wilful mis-statement, suppression of facts, or violation of the Act/Rules with an intent to evade payment of duty.

While holding that the term “suppression” does not mean mere omission but a positive act of suppressing information with an intent to evade payment of service tax, the CESTAT said, “It is undisputed that in this case, the Department was fully aware of the activities of the appellant and had issued a show cause notice on 26.04.2011. Therefore, the Department cannot allege that it was not aware of the activities of the appellant and that the appellant had suppressed any information. The entire demand in this case is beyond the normal period of limitation.”

Conceding that the Supreme Court’s decision in Nizam Sugar Factory v. Collector of Central Excise (2006) was applicable to the case, the bench held: “We agree with the learned counsel that the decision of Nizam Sugar Factory applies squarely to this case and a second show cause notice could not have been issued invoking extended period of limitation. On this ground alone the entire show cause notice needs to be set aside.”

While reckoning that the CESTAT has consistently held that buying and selling of SIM cards and recharge coupons does not amount to providing business auxiliary service to the principal, the Tribunal referred to the decision of CESTAT in M/s Devangi Communications & Ors. vs. CST & CE (2018). In M/s Devangi Communications (2018), the CESTAT had ruled that with the telecom operators discharging service tax on the whole MRP value of SIM cards and recharge cards, no further service tax liability can be imposed on the persons who are dealing/selling the said SIM cards or recharge cards to the public.

The CESTAT thus allowed the appeal and set aside the order.

“In view of the above, we find that the impugned order cannot be sustained either on merits or on the limitation. The impugned order is set aside and the appeal is allowed with consequential relief to the appellant.”

Case Title: M/s J.K. Enterprises versus Principal Commissioner, Central Excise Commissionerate, Alwar

Dated: 19.01.2023

Representative for the Appellant: Ms. Surabhi Sinha, Advocate

Representative for the Respondent: Mr. Rajeev Kapoor, Authorized Representative

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